Retailers report dismal December sales

By Andrea Chang

Jan. 9, 2009 12 AM PT

Beleaguered retailers announced plans to close stores, promised more bargain-basement prices and cut their earnings forecasts Thursday, signaling deals for shoppers but more trouble ahead for the country’s deteriorating economy.

Macy’s Inc., one of the nation’s largest department store chains, said it would shutter 11 stores across the country, including one of its two neighboring locations in downtown Los Angeles. Nordstrom Inc. said it was trimming inventory levels at its stores to meet weak demand. Even discount giant Wal-Mart Stores Inc., considered one of the few retail winners, lowered its earnings projections.

The news came as major chain stores confirmed that 2008 was the worst holiday season in decades.

With no prospect for a quick turnaround in sight, retailers are bracing themselves for an industry shake-up that will eliminate the weakest players, analysts said. That would leave store employees without jobs, commercial landlords scrambling for new tenants and consumers with fewer choices.

“There’s more to come, clearly,” said Todd Slater, an analyst with Lazard Capital Markets. “Retailers are struggling, are feeling the pain that has widely hit most other sectors. The retail sector will feel it most acutely. Nobody is immune.”

Desperate merchants were counting on a robust holiday season to pull them out of a months-long slump. The end of the year is a crucial time for the industry -- sales from November and December usually make up 25% to 40% of annual revenue.

But sales fell 2.2% during the two-month period compared with a year earlier, according to the International Council of Shopping Centers. That made it the weakest holiday season in 40 years, despite some of the most aggressive markdowns ever seen on merchandise including electronics, apparel and luxury items.

“Retailers were forced to slash prices to entice consumers to spend,” said Michael Niemira, the council’s chief economist, who said he worried the holiday season was losing some of its clout. “But even that strategy was not enough.”

About 73,000 stores may close in the first half of this year, according to the shopping center group.

Macy’s, which reported a 4% same-store sales decline, said 960 employees would be affected by its 11 store closures.

The only California location scheduled to close is in the 7+Fig shopping center at 920 W. 7th St. in downtown Los Angeles. The store opened in 1986 and employs 136 workers, the company said. Clearance sales will begin within the next week.

Terry J. Lundgren, Macy’s chairman and chief executive, said the actions were part of the company’s “normal-course process to prune underperforming locations.” But he conceded that current economic conditions were also a factor.

“The decision to close stores is difficult, and often occurs when the market changes, new competing shopping centers are opened nearby to existing older ones or when customers change shopping habits,” he said.

At the Macy’s at 7+Fig on Thursday, shopper Liz Ortiz, 30, said she was sad to see her favorite location close but had other options -- including the chain’s neighboring store down the street at 750 W. 7th St. in Macy’s Plaza.

“I can always go to another Macy’s,” said Ortiz, a customer service representative from Lakewood. Still, “it’s unfortunate that this has to happen.”

Bert Dezzutti, a senior vice president at Brookfield Properties Corp., which owns the shopping center at the intersection of 7th and Figueroa streets, said Macy’s departure was unexpected but not a complete surprise.

“Like everyone else, we’ve been watching department store operators” struggle, said Dezzutti, who added that Macy’s exit would give the company more flexibility while it designed a large-scale makeover of the mall. “Closings like this are part of where we are in the economy.”

December sales at stores open at least a year, called same-store sales and considered a barometer of retail health, fell 1.7%, according to the shopping center group’s tally of 36 major chain stores.

Teen apparel stores and luxury chains were among the worst performers last month. Sales at Abercrombie & Fitch Co., which has resisted slashing its prices in an effort to protect its brand image, plummeted 24%. Luxury retailer Saks Inc., which made headlines in November when it offered designer goods for as much as 70% off, reported a 19.8% decrease.

Gap Inc., parent company of the Gap, Banana Republic and Old Navy brands, reported a 14% sales decline, missing analysts’ expectations of a 9.3% drop.

“December was challenging, as customers waited until late in the month to shop and we faced a highly competitive promotional environment,” said Sabrina Simmons, chief financial officer of Gap Inc.

Consumer spending accounts for roughly 70% of U.S. economic activity. But many people are saying they’re still in no mood to spend. At a Target in Los Angeles this week, Terrence King waited in a long line at the customer service counter holding a $40 Monopoly set. He bought the board game as a Christmas present for his grandson but decided to return it after finding the same one at Kmart for $18 less.

“I’m returning it because the price was too high,” said King, 61, a security officer from West Los Angeles. “Money is tight.”

Retailers will continue to slash prices and offer other deals to attract wary customers, moves that could further erode profits. Even chains that are doing well are planning strategies to ride out the recession, said economist Sung Won Sohn, a professor at Cal State Channel Islands and vice chairman of L.A.-based clothing chain Forever 21 Inc.

“The fact of the matter is, the consumer pie is shrinking,” he said. “Market share requires harder work than before.”

For Forever 21, that means keeping prices low while staying on top of the hottest trends, he said. Retail experts have worried that other apparel chains are playing it safe by holding back on compelling styles in favor of basic items.

“If you’re not able to keep up with the fast fashion,” Sohn said, “you’re a goner in this market.”

andrea.chang@latimes.com

Times staff writers Mark Medina and Roger Vincent contributed to this report.

(BEGIN TEXT OF INFOBOX)

Dismal month

Year-over-year percentage change in December sales at stores open at least a year

Company: Change

Hot Topic: +4.3%

American Apparel: +3.0

Wal-Mart: +1.7

Ross: 0

Kohl’s: -1.4